Manager's Notebook:Global Drivers

Dealing with the next generation of regulations, standards, and corporate watchdogs

• By Richard MacLean
• Jun 01, 2005

The U.S. environmental, health and safety (EHS) regulatory model has dominated the thoughts and agendas of America's EHS professionals for the past 30 years. State and federal regulations will not go away, of course, but they are rapidly being overshadowed by a fundamental shift in how EHS issues will be dealt with both here and abroad. This article examines these trends and provides some specific examples of how to put the competitive advantage of the new dynamics into play.

When one is deep into a myriad of issues, projects, and activities, it is often difficult to step back and see what is unfolding -- the forest versus the individual trees. And it is especially difficult when there is a profound shift in the nature of the forest itself; transitioning from say, a tropical hardwood forest to a temperate hardwood forest. The evolution can be so gradual and subtle -- a new tree here and another unfamiliar tree there.

Long after the transition is over, historians will pinpoint the key events that elevated everyone's awareness that something fundamentally changed. For example, Rachel Carson's Silent Spring, is often cited as the transition point for the environmental movement. Although the evolution was already well underway by the time her book was published, it was the "tipping point" that galvanized public attention.1

Most environmental, health, safety, and social responsibility (EHS & SR) professionals are up to their necks dealing with day-to-day issues -- deep in the forest, as it were. But senior professionals have acknowledged to me that there is a shift well underway, one as significant as the revolution that brought on the environmental movement in the late 1960s. Indeed, these practitioners already spend most of their time on these issues that do not fall within the traditional regulatory model that dominated their early careers.

The tipping point is starting to be felt as European Union (EU) product directives become de facto world standards. This shift has crept up on many U.S. companies. Much like the frog swimming in the cool pot of water that will soon be boiling, there is no immediate need to jump but if these companies don't react soon, it will be too late (and too costly). Unfortunately, many also will perceive directives such as RoHS (Restriction of Hazardous Substances in Electrical and Electronic Equipment) as just another compliance issue and miss the strategic implications.

These emerging global dynamics are more complex than the traditional command and control approach. It is no wonder that it is the senior professionals who currently deal with these issues -- ultimately big bucks are at stake for their companies. What I find interesting is the lack of published material or conference agendas that directly discuss this shift. Much is available on the individual issues such as RoHS (the trees), but an integrated picture has yet to be widely recognized (the forest).

Without a major event to rouse public or corporate attention (i.e., the equivalent of another Silent Spring), this transition remains off the radar screen. Global warming may grab media attention, but it is not "an event." It is a process that will play out over generations with believers and skeptics arguing at every juncture. Just read Michael Crichton's State of Fear in which he takes the position that global warming is nothing but an environmental wacko conspiracy to keep the cash flowing into activist organizations. Unawareness has profound implications for EHS & SR professionals; it makes their job of obtaining resources to deal with emerging issues all the more difficult. Many business executives essentially remain stuck in a 1980s mindset when PR and regulations dominated the EHS agenda. The Bush Administration and the Wall Street Journal only add to the belief that everything is just fine -- stay the course or trim back because of progress.

What is This New Forest?
Van Jones, executive director of the Ella Baker Center for Human Rights, was quoted in 2004 in the seminal essay, The Death of Environmentalism, as follows: "The first wave of environmentalism was framed around conservation and the second around regulation. We believe the third wave will be framed around investment."2

The first two environmental waves and their underlying drivers (i.e., conservation and regulations) are widely recognized. Van Jones believes that the third wave has begun and its focus is on investment in public education, coalition building, and cleaner technology. He is on the right track, but I believe he is missing the underlying driver in what is very much a U.S.-centric analysis of environmentalism. He addresses some of the elements as to "how" change will occur, but not the underlying driver of "why" it is occurring.

The next wave (the forest) is the shift to global markets. In reality, it is the culmination of a series of converging dynamics (see Table 1). The European Union (EU) has led the way with a series of directives and policies that have migrated from a media approach (air, water, and waste) to a holistic look at the manufacturing operations, and more recently to the products themselves. Viewed in this context, RoHS is actually part of a paradigm shift in the integration of EHS with design and business strategy. The United States has been slow to embrace this concept; after all, the entire domestic EHS infrastructure is based on a regulatory compliance framework designed to solve EHS problems.

The media approach was one way to solve the severe environmental problems the U.S. faced at the time, but it is now institutionalized as a solution that cannot meet future needs. When you control the emissions and leave the process unchanged, you invest money in end-of-pipe controls. Yes, it keeps you in business, but it does little to improve your productivity or your products. Pollution prevention programs were very much in vogue a decade ago. But after the "low hanging fruit" was plucked, interest has faded -- in part by the extreme reluctance to make substantive changes to the manufacturing processes themselves.

Realizing that the manufacturing process was only a small part of the environmental impact from manufacturing, the EU began looking at the impact of products during their use and end of life. The first step was to invoke a policy of making producers responsible for the products from "cradle to grave." The EU started to chip away at the issue -- first with the Packaging Waste Directive, then batteries and RoHS and WEEE (Waste Electronics and Electrical Equipment).

This is not rocket science. To tackle the issue of responsible manufacturing, one must first enlighten and encourage the product designers to take into consideration these new dynamics driven not only by the EU, but by non-governmental organizations and voluntary standard-setting partnerships as well. For products, the outcome can be as simple as making the manufacturer responsible for take back and end-of-life management for packaging, batteries, or waste electronics. It can be as specific as banning materials in electronic products. Again, the important change is that products and services now are becoming the focal point for reducing EHS impact. This change renders U.S. regulators and traditional U.S. environmentalism to a secondary role.

We are not in unplowed land. There were early warning signs with the restricted use of DDT, polychlorinated biphenyls, asbestos, and ozone-depleting chlorofluoro compounds. In fact, these actions foreshadowed the EU directives. To U.S. business managers, these early bans seemed like isolated cases, and the mindset "do not interfere with manufacturing" dominated -- as it still does today.

Polaroid Case Study
The shift to a product focus can be both a threat and an opportunity for EHS practitioners in industry. It all depends on how a company positions itself. For example, Stephen Greene, principle of Howland Greene Consultants, was instrumental in setting up the RoHS (Lead Free) program for Polaroid Corporation by building on the existing product stewardship program.3 Greene states that, "most EHS managers felt that product stewardship was fluff and not the important business of complying with the numerous EHS requirements." Fortunately, key business executives also recognized that times were changing and they were instrumental in supporting a different position.

As the EU restrictions on the use of lead, mercury, hexavalent chrome cadmium, and two brominated fire retardants were formalized, it became necessary to develop a plan with three important elements -- timing, staff, and diverse knowledge.

Greene put together a team of Polaroid managers to be ready for the new directive. The team created to do this did not include the usual suspects. Greene states, "I was the only environmental expert on the team of about 25 team members. They knew the product, purchasing, materials management, the finances, and marketing issues. I knew the new product environmental requirements. Together we worked with these requirements to put a 'Lead Free' product into the program."

Indeed, this environmental problem was different because it could not be solved with a control device or add-on program. If Polaroid was going to sell its electronic products in Europe or parts of Asia, they had to be redesigned.

With careful timing, inventory issues were minimized as were bleeding-edge problems. For example, telling people in 2003 that the current cameras and electronics would be banned from sale in 2006 seemed like light years away. But backing off from the deadline, factoring in redesign, re-qualification, and current inventory management, starting the Polaroid program in 2004 was none too soon.

Greene represents a new generation of consultants who blend expertise in international environmental regulations and product environmental requirements with the inner workings of business. Most corporations generally do not have the resources to invest in such dedicated talent; therefore, it is much more practical to outsource this work to specialists such as Greene.

The Bigger (Forest) View
What about companies that are not multinationals or that do not sell their products and services overseas? One could consider this just another regulatory issue with a European Union face, as illustrated by Table 2. Not so. Scan Table 1 again and consider the breadth of the dynamics. There is insufficient space in this article to go into the depth of each facet. For example, in a 2004 journal article, I highlighted just one factor, specifically, non-governmental organizations (NGOs).4 It is a big forest, indeed.

The point is that when paradigm shifts occur, those companies that are best able to establish a long-term strategy to take advantage of the trends are in a better competitive position. Assuming that this transition will have no significant influence, conducting the equivalent of a "back-of-the-envelope" analysis may be totally inadequate. The first step is to educate yourself on these issues and then build business management's awareness. "Strategy maps" are an effective business management tool to accomplish this objective. (I will describe strategy maps in the next Manager's Notebook.)

If you think the changes won't affect you, check what your customers are planning. They may force a purchasing specification upon your company that will allow them to sell or use your product anywhere in the world. With a supply chain that is becoming more global with each passing day, companies must have products that they can sell anywhere. For example, there are a growing number of customers in the supply chain who say that they don't want the metal lead in the product, period. It does not matter if it is an electronic device such as a computer or an automobile. They just don't want the hassle or any future liability.

The dynamics are much broader than most people are even willing to recognize. Global warming may not be high on the Bush administration's issue list, but it is affecting research and development (R&D) investment and new product introduction globally. In the auto industry, this shift is most evident with Toyota's high stakes investment in gas-electric hybrid technology.

Mike Taubitz, global regulatory liaison for General Motors, seeks out emerging global health and safety issues to assure that GM's future manufacturing efforts are aligned with regulations and standards. GM's push for common global processes has put a new emphasis on harmonizing efforts among all global regions. Mike states, "Charting emerging issues on our visual 'Threat Matrix' clearly shows that the drivers of workplace safety and health are coming from Europe, not the U.S." Other industry leaders are picking up on these dynamics. For example, Jeffrey Immelt, CEO of General Electric, was quoted as far back as 2002 saying that, "Almost 99 percent of all regulations will come from the EU over time."5

Indeed, instead of a tactical response to these issues with compliance as the objective, the visionary EHS leaders, such as Mike Taubitz, are developing a strategy for anticipating and modifying their company's products and manufacturing processes well ahead of new requirements or standards. Activities such as these will involve new players within the company and demand that EHS professionals communicate in business language, not enviro-speak.

Already some professional and trade association organizations are beginning to take notice. For example, Organization Resources Counselors (ORC) established an Emerging Issues Task Force in 2004 to develop new approaches to identify, track, and respond to these emerging dynamics. Frank White, vice president at ORC, says, "Our member companies recognize that whether they make the final product or they are a link in the supply chain, they play a critical role in producing a product that meets future requirements set by international standard setting organizations or regulatory agencies in foreign markets."

Does this mean we throw out the U.S. command and control system that we are used to? Obviously not. The current U.S. regulatory scheme is like a signpost on a restricted route that appears on a roadmap through this new forest. The dynamics behind the overall highway structure are very different than before, and companies would be in a state of serious denial if they think that they can rely on the Occupational Health and Safety Administration and the U.S. Environmental Protection Agency for leadership in setting a course through the forest.

References
1. Malcolm Gladwell in his classic book, The Tipping Point: How Little Things Can Make a Big Difference, describes how seemingly insignificant events (like the publication of Rachel Carson's book Silent Spring) can become "social epidemics."
2. M. Shellenberger and T. Nordhaus, The Death of Environmentalism, September 2004, page 28. Available at http://thebreakthrough.org/images/Death_of_Environmentalism.pdf, last accessed 2/21, 2005. 3. Howland Greene Consulting LLC, Lowell, MA, http://www.howlandgreene.com.
4. R. MacLean and Brijesh Nalinakumar, "The New Rule Makers: The Paradigm Shift in Environmental, Health, Safety and Social Responsibility 'Regulations' Now Underway," Corporate Environmental Strategy, September, 2004, pages 2-183 - 2-198. Available at http://www.Competitive-E.com.
5. Wall Street Journal, April 23, 2002.

This article originally appeared in the 06/01/2005 issue of Environmental Protection.